Is Your Retirement Account Underfunded? You’re Not Alone

In the middle of one of the longest bull markets in our nation’s history, a growing number of Americans claim they are not saving enough for retirement. According to TD Ameritrade’s 2019 Retirement Pulse Survey, released in September 2019, approximately 60% of Americans are saying they need to catch up on their retirement savings.

The survey included three age groups: Millennials (ages 23-38), Generation X (ages 39-54) and Baby Boomers (ages 55-73). Of those age groups, Generation X had the highest percentage of respondents (73%) claiming they needed to save more. However, just over 50% of Baby Boomers (51%) also said they haven’t saved enough.

No matter what age group you fall into, it’s clear that if you feel your retirement account is underfunded you are not alone. But the question is what can you do about it? One of the easiest strategies is to maximize the contributions you make to your 401(k) or IRA accounts. However, although the majority of respondents said they would rather prioritize saving for retirement over paying off debt, the study showed that only about one in five Americans consistently maxed out their accounts.

The purpose of this article is not to beat you up if you’re behind on your retirement savings. The reasons for postponing retirement planning are unique to every individual. The most important question is what can you do now?

If you’re a younger saver, relax but start increasing your saving now

The good news is, the younger that you are, the easier it is to catch up without making major lifestyle changes. The bad news is you likely have student debt. This means that you will have to do some creative savings strategies to come up with extra funds. Millennials are driving the growth of food delivery services and their stocks. But that is an easy area to cut back. Another trend that is being driven (no pun intended) by Millennials is ride-sharing. That may be another source of savings. Yet another source of savings can come from streaming services. With new companies coming online seemingly every month, now may be a great time to not only cut the cord but also cut some of your streaming services. If you were able to free up an additional $300 of savings and invest it in a stock-heavy portfolio, you can realistically expect an average return of around 7%. That amounts to about $498,000 after 35 years.

If you’re in middle age, it may be time for a side hustle

If you have 20 years or less to retirement, the reality is that it may not be as easy for you to find additional income through penny-pinching. This is particularly true if you have kids in college or if you’re taking care of an elderly parent(s). Well, the good news is that a balance sheet has both a debit ledger and an asset ledger. If decreasing your liabilities is not practical, you will need to look at increasing the asset side of your ledger. That can mean finding a second source of income. The good news is that it’s never been easier to find work from home options. Even busy professionals can find online revenue streams. And once that paycheck arrives, you can put it right in your retirement account before it gets eaten up for other expenses. If you could come up with $700 a month between increasing your income and cutting expenses and invest it at 7% for 20 years, you could earn an additional $344,000.

If you’re in the baby boomer generation, you may have to downsize your retirement goals

The disappointing news for baby boomers is that money does not actually grow on trees. And that means that if you are nearing retirement but lack adequate savings, you will have to rethink your retirement goals. This is in addition to getting a second job and cutting back on savings. But there is a silver lining. First, many Americans are working longer. So if your employer allows it, working longer is one avenue to take. And if you can’t work longer at your primary job, maybe you can consider getting active in the gig economy. Many seniors are finding that companies have a need that they can fill. But the reality is, depending on how far behind you are catching up on retirement savings may mean adjusting your expectations. This may not be as painful as you think. It may mean staying in the house you’re currently in rather than relocating. Or it may mean downsizing to a smaller home earlier than expected. It may also mean changing your expectations about traveling. Remember, you’ll need this money to help you get through your golden years. And that means that health care expenses both actual and perceived future costs need to be considered.

The news is not all bad

The survey did point out a positive sign. 68% of respondents said they felt that catching up on their retirement savings as possible. And it is for you too. But the sooner you start to take action, the fewer trade-offs you’ll need to make.